Q&A: Why the UK Social Bond is a winner

Earlier this month, the UK Social Bond, in which Warwickshire County Council has £40m invested, won the European Pensions Innovation Award for 2015. We talk to Moira Gorman and David Oliphant from Columbia Threadneedle Investments, which runs the bond in partnership with Big Issue Invest, the social investment arm of The Big Issue.

Room151: What is the UK Social Bond?Moira Gorman (MG), local authority client director at Threadneedle: We set the bond up in partnership with Big Issue Invest looking to deliver against certain social criteria but also as an investment for pension and treasury investors, as well as somewhere the man on the street could invest ISA funds.

David Oliphant (DO), executive director for fixed income at Threadneedle: It is the first fund that unlocks the potential from fixed income to deliver social incomes validated by investment type returns. Other types of social impact investing is usually undertaken by smaller private equity firms and are not very liquid.

Room151: How did it get off the ground?DO: It launched in December 2013. It is a daily priced, open-ended fund and launched with £10m of seed investment from Big Society Capital, the world’s first social investment bank and £5m from Threadneedle. The fund invested in investment grade corporate bonds – daily priced and daily dealt. If investors wanted to redeem they could disinvest in day.

Room151: What makes this a “social” bond?DO: There are eight types of social outcome where bond issues are targeted – affordable housing and community services, transport and communications, utilities and environment, employment and training, health and social care, financial inclusion and education, learning and skills. These range from housing association bonds to those issued by Manchester Airport. They vary in size – normally around £250m.

A third of bonds are localised to deprived communities. 70% of bonds favour regions outside the high-performing Greater South East – the North (40% of bonds), the Midlands (15%) and Wales (10%). Thus, the fund’s geography is strongly aligned with the Government’s social ambition for inclusive and balanced economic development.

Before investing Big Issue Invest does a social assessment, and we invest in companies judged to provide a positive social income.

Room151: How big is the fund and how does it pay out?
MG: The total is now at £72m – Warwickshire came in as one of the earlier investors in 2014 with an investment of £40m. Their investment represents treasury assets that have a longer term horizon. There is a quarterly distribution yield of roughly. 3.2% It will fluctuate according to the underlying security.

R151: Are any other local authorities investors in the bond?MG: Not yet, but the City of London Corporation is also invested on behalf of the City Bridge Trust. I would say to other local authorities that this is a longer term investment for treasury investors, as well as those that have pension funds. You are holding UK corporate bonds and they are delivering an impact investment. This is an opportunity to provide both a return at around the industry benchmark at a risk slightly lower than the peer group – as well as a postitive impact in terms of social delivery.

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